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A federal judge on Friday provided a big win for the health insurance industry, ruling that a Centers for Medicare & Medicaid Services final rule on overpayments was fundamentally unfair.

In a 30-page rulingthat vacated the Medicare Advantage 2014 Overpayment Rule, U.S. District Judge Rosemary Collyer sided with UnitedHealth Group and said the final rule "will inevitably fail to satisfy the statutory mandate of actuarial equivalence."

Stephanie Trunk, healthcare cractice co-leader at Arent Fox, based in Washington, D.C., explained the ramifications of the ruling in an email exchange with HealthLeaders.

1. How will this ruling change the way health insurers do business?

Trunk: The ruling essentially invalidates CMS's 2014 final rule implementing the 60-day overpayment return requirement in the Affordable Care Act. Medicare Advantage Plan sponsors—such as UnitedHealth—still must comply with the ACA requirement to report and return any overpayment "after reconciliation" within 60 days after the date on which the overpayment was identified.

2. What were the factors that led to a favorable ruling for UnitedHealth?

Trunk: The court concluded that CMS's 2014 final rule implementing the 60-day overpayment requirement violated the Administrative Procedures Act because (1) it was contrary to the statutory requirement of actuarial equivalence between traditional Medicare and Medicare Advantage, and (2) the intent standard associated with "identifying" an overpayment in the final rule—when it has determined or should determine through reasonable diligence—adopted in the final rule was not as proposed in the proposed rule and heightened in comparison to the statute—actual knowledge of the existence of the overpayment or acts in reckless disregard or ignorance of the overpayment.

3. How could the government respond to this ruling?

Trunk: One can only speculate. CMS can appeal or they could initiate new notice and comment rulemaking with a new proposed rule to implement the a 60-day overpayment requirement.

4. How could the federal government adjust the final rule to make it comply with statute?

Trunk: CMS needs to move away from tying overpayments to Medicare Advantage plans to diagnosis codes, which is not the basis for overpayments in traditional Medicare. In addition, CMS needs to align the definition of "identify" in the rulemaking to the statute and ensure what is included in the proposed rule is not altered in the final rule.

The basis for the case is that UnitedHealth failed to return identified overpayments as required by the ACA, as it failed to delete invalidate diagnosis codes and return the risk adjustments associated with higher value, invalid diagnosis codes. This is based on the interpretation of the ACA overpayment obligation in the 2014 final rule, which the court invalidated.